2024 has revealed starkly the insufficiency of 20th century economics to solve problems of run-away climate change, inequitable growth, and the rise of authoritarian governments.
Economics became the imperial science for driving public policy in the 20th century. Social and political turmoil in Western countries between the two World Wars was fueled by economic injustice within and amongst countries. Political movements rose to correct the imbalances—Nazism in Germany, fascism in Italy, communism in Russia. After the Second World War, the world became divided between the communist Soviet Union and capitalist USA with socialist Europe in the middle. Keynesian economics provided the foundations for socialist policies and international trade and development institutions. By century end, the Washington ideology of free trade and private enterprises prevailed over socialism, and communism was buried.
Economic science in its present state cannot provide solutions for problems it has unwittingly caused. Benefits of economic growth are not flowing down quickly enough to nourish society equitably. Movements from the Left and the Right are rising to challenge the neo-liberal ideology. Liberals are alarmed by the rise of authoritarian governments and demands for local jobs and national self-reliance even in the USA. New models of economic growth are required, which do not exploit nature, and which improve the distribution of well-being and equitable opportunities for all citizens, not just increase GDP.
Reforming economic policies
Problems caused by lop-sided economic growth cannot be solved with the same economics that has caused it. Before pressing for more reforms, economists should reconsider some fundamentals for good public policies.
1. Ease of living
The purpose of economic growth must be to improve the ease of earning and living of all citizens. The ease of making profits by businesses is only a means to this end. The purpose of a business enterprise cannot be only profit for its investors because this harms the soil in which businesses grow. Businesses must nourish the lives of human beings—their customers, their employees, and the contractors who provide them with services. If their incomes do not grow, business revenues and profits cannot grow. Therefore, the ease of living of all citizens, rather than the ease of doing business, must be the measure of an economy’s health.
2. The meaning of work and the purpose of our lives
The numbers of older persons have increased everywhere, with economic progress and improvements of healthcare and nutrition. Numbers of births have reduced too, with less need to produce more children, because child mortality has reduced; also with more women, joining the paid workforce to earn enough to support themselves and their families, who have less time to care for children. All-round needs for caregiving are increasing—for children whose mothers are at work, for more older persons, and for an increasing number of youth who feel uncared for and have emotional problems aggravated by social media.
Economists see needs for caregiving as opportunities for businesses and increasing GDP. The dilemma is who will pay for the care needed. If care is provided by businesses, they must be paid for it for their own survival. For governments to afford to provide care, as a social service and as a human right, they must have enough financial resources for their survival too. If governments cannot tax wealthy persons and businesses more (because they say this will reduce their incentives to invest and make more profits) where is the money to come from.
Solutions for 21st century economic dilemmas must begin with some fundamentals. Do humans live to work, or work to live? Where is the work-life balance? Should the worth of a human life be measured by how much money a human being earns? Is care-giving less valuable work than producing stuff for sale in the market? Why is the natural work women do to produce and care for infants less valuable than the work men and women do laboring in a factory?
3. Forms of organizations
Adam Smith explained, with his example of a pin factory, how economies grow with factory form organizations, in which each worker performs a small task in a larger production system. Increase in the productivity of each worker contributes to the economic productivity of enterprises and economic growth.
Factory form organizations are ‘formal’ organizations in economics; whereas family and community form organizations are considered ‘informal’. Family and community organizations also have forms to fulfill their function of mutual support amongst their members. Their members transact with each other in non-monetary currencies. The work done within such enterprises is not monetized and it does not add to the GDP, though it improves the well-being of their members. 21st century challenges of social and environmental sustainability require more community form enterprises rather than factory form corporations. They may not be as efficient for increasing GDP. But they improve the well-being of citizens.
4. Reform the process
Democracies are under threat because the people below, who are supposed to be the beneficiaries, are not sufficiently included by governments in shaping economic policies. Economists, other experts, and wealthy people are dominant. New solutions require new participants in the policy making process. The common people must feel included, or they will protest.
(Published in Mint, December 24, 2024)
https://www.livemint.com/opinion/rethinking-the-purpose-of-economic-policy-gdp-11734502352059.html